Monday, September 06, 2010

Bad News for Labor This Labor Day

From Linda Chavez:

"The labor movement doesn't have much to celebrate this Labor Day. Congress first established the national holiday in 1894 at unions' behest. Since then, the American labor movement's fortunes rose to their zenith in 1956, when more than three-in-10 workers were union members, only to decline each year after. Today, only 12 percent of workers hold union cards (see top chart). And if you discount union members who are public employees, barely 7 percent of private-sector workers are union members (see bottom chart).

So why has labor unions' membership declined so far?

Some of it has to do with the changing work trends in the United States. We've moved from large-scale industry to service and white-collar jobs, from big employers to small business, and from lifetime tenure to job insecurity and frequent career changes -- all of which makes union organizing more difficult.

But the biggest problem for unions has been their own leadership, which has grown out of touch with the very people those unions hope to represent."

1. Half of all American union members live in just six states: California, New York, Illinois, Michigan, Pennsylvania, and New Jersey (from Linda Chavez's article).

2. The bottom chart above shows that in 2009 there were more public-sector union members (7.89 million, 37.4% of all government workers) than private-sector members (7.43 million, 7.2% of all private workers) for the first time ever.

25 Comments:

How about the legal landscape changing outside the favor of labor unions? I'd blame that instead of your "we're an unstable service sector economy, so STFU" excuse.

I'd imagine some natural animosity has only changed the type of attack as well. No longer does one get attacked by business directly, they just litigate you into oblivion. Then they make sure you're unemployable.

To speak of work in general:How about just bring back job security instead of trying to kill it? That, and making it harder to refuse the unemployed would go a long way. Think of it as investing in the people of your own community.

Every time flexibility is trotted out, it favors few workers(who already have the flexibility) and many businessfolk. Same thing with the trade treaties. The businesses are fine, but the risk gets passed on the people performing the work.

bix1951: "A business without labor unions does better and ultimately is better for labor"

It depends on how you look at it. If you are a non-union coal miner you are more likely to be dead but employed than a unionized coal miner. You have to pay the price one way or another. Helluva a choice for someone who wants to feed their family: Isn't it?

Best regards to you all on Labor Day from a worker with 3 jobs where one is unionized.

bix1951:Explain how badly the Massey mines(and other nonunionized ones) operate safetywise. Explain how the unions came in willingly to help a non-unionized mine rescue people. If there's a good reason for unions to exist, go work in a mine and you will find one.

fboness:Not running a business doesn't give you an excuse. I've worked for small and large businesses; in each case I made it a point to get familiar with each one's industry as well as the position that I occupied. You act as if I am some vassal who has not shown proper deference to a lord, courtesy of my objections.

The last thing that should be done is to try to offload risk downward without reward. If you want backstabbing/incompetent people, that is the consequence.

I just got back from West Virginia. My wife was born in a coal camp one county below the Massey mine. Those people are poor and need to work, but they know if they complain about safety at a non-union mine, they will not have a job the next day. Those guys are experts. They know what is not safe.

Like I said, do you want to eat or do you want to live? I would not judge someone on that choice.

Walt, it depends on how you view things. In a liquidation, everyone would have been wiped out since GM was worth something on the order of perhaps $100M in liquidation. But the UAW would have gotten nothing in a liquidation. And if I remember correctly, PIMCO stumped hard for a better deal, threatening to hold things up.

The UAW really had GM and the rest of the Detoit Three by the nuts and systematically eliminated any possiblity of advantage over transplant automakers. And at the end of the day, they had a friend in the White House, who helped them get a very good deal in the bankruptcy. If this had been almost any other president, the UAW would be a casino union only now.

"In a liquidation, everyone would have been wiped out since GM was worth something on the order of perhaps $100M in liquidation. But the UAW would have gotten nothing in a liquidation."

Jason, are you saying it would have been worth losing everything (1/10 of a billion dollars is basically nothing) to get rid of the UAW? I can't see any rationality in that given the trade off of a possible--some say probable--thriving company or two in the near future.

I agree with you that President Obama helped GM and Chrysler, but so did President Bush, Congress, the bankruptcy court, the appeals court, and the Supreme Court. The transplants, at least Toyota, supported the loans, too. Maybe they all saw a good reason.

As for the transplants, they were/are all heavily subsidized by the southern states where they are located. The majority of Congress that were against the bridge loans were from those states, so I don't know how objective they were.

I agree the loans certainly were not a popular decision; however, people do not always make rational decisions based on facts or analytical research. We will not really know if it was a good decision until a few years down the road.

Quote from Walt G.: "OSHA safety reporting is measured by the incidence rate per 100,000 work hours."

OSHA incident rates are based on a 2000 hour work year. In order to make the calculation result roughly equivalent to a percentage, you multiply 2000 by 100 (i.e., 200,000). So the rate isn't per 100,000 hours, it's per 100 workers.

The typical result is that the smaller your work force, the more likely your incident rate will be higher, not lower.

Walt, of course I'm not suggesting GM would hsve been better off liquidating.

The loans were necessary (for all automakers), I have no issue with them and I supported them. (let the flames begin)

But, my issue is here is with the UAW. The bankruptcies did not solve the underlying uncompetitive framework within the Detroit Three. GM and Chrysler were given a reprieve and the major conflict management/labor has been postponed. The next set of contract talks (2011) will illustrate the issues.

Can you be more specific about "uncompetitive"? You can't use the 2007 contract figures in our 2010 business model because too much has changed. And we are not even sure what some of those 2010 figures are yet. A lot of our plants are running over 100% capacity with all the consolidations.

Quote from sethstorm: "How about just bring back job security instead of trying to kill it? That, and making it harder to refuse the unemployed would go a long way. Think of it as investing in the people of your own community."

How do you "bring back job security"? What do you mean by "refuse the unemployed"? Are suggesting that people should have a right to be employed and not fired?

I think people always invest in the people in their own community, it's just that their definition of their "community" is much different than yours and changes depending on the situation.

bix1951: "A business without labor unions does better and ultimately is better for labor"

Really?

Southwest Airlines is the most unionized of all the U.S. airlines. Yet it has claimed the lion's share of profits in the U.S. airline industry over the past two decades.

UPS workers are represented by the International Brotherhood of Teamsters. UPS's profitability has consistently matched that of its non-union rival, FedEx.

Kroger's workforce is unionized, yet the company has averaged over 20% return on equity over the past decade.

General Mills factory workers are represented by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union. General Mills' return on equity has also averaged above 20% for the past decade.

Why do union workers get paid more (about 30 percent) than nonunion workers and more generally what drives the pay of any job? There are two schools of thought neither of which is provable.

Free marketers insist pay is determined by productivity and market forces. Executives earn huge pay because they make the profits happen. Under this theory union wages and other restrictions like a minimum wage creates unemployment.

Nonsense, say others including British economists Adam Smith (Wealth of Nations) and David Ricardo (theory of Comparative Advantage) who studied the question more than 200 years ago. They concluded that a person’s wage was determined by their bargaining power because it is impossible to determine the contribution any one person in a team makes. A factory worker alone has no power to demand more pay. That power in increased by banding together. The employer can replace any single worker most of the time. Replacing all workers is rarely feasible. In replacing any worker the employer would have to pay the going market wage. Replacing a single worker at market price incurs no cost savings over giving the existing worker the same wage in fact it incurs a cost of hiring and training. The union can command a premium over the market wage because the hiring and training cost would be prohibitive. The premium is limited by the value of the product that labor makes in the market. A company can afford to pay more than market up to the limit of an acceptable profit from the products produced.

Consider two firms which have cost structures identical in every way except that one pays higher union wages. The non-union firm should be able to force the compensation of the union firm workers down to "market value". Or else continue to steal market share from the union firm. I think that has happened in the auto industry, as rivals of GM and Ford have opened factories in right-to-work states.

Wage premiums can exist where an industry has significant barriers to entry. But such barriers have been falling the past three decades.

I thing James and Jet Beagle are both right. What James suggests only works with pattern bargaining which Jet Beagle is discussing in negation. Why do you thing the new UAW president, Bob King, is so adamant about organizing Toyota as his main objective and legacy in his short tenure?

The only way private labor unions can be relevant in the 21st century is by being partners in the success of the company. Public labor unions have their own and much bigger problems.

Workers for a passenger airline company are generally represented not by one, but by several unions. Pilots, flight attendants, mechanics, and other ground workers each bargain independently of one another. In this industry, I think the role of each union is to capture for its members the largest share of the total labor compensation the airline can offer.

Competition from non-union carriers limits the total amount the airline can spend on labor. But the market does not restrict the way the airline divvies up that total amount. That's because union seniority rules restricts the mobility of workers.

The non-union firm should be able to force the compensation of the union firm workers down to "market value".

You would think that would be the rule, but it is not.

Theatrically speaking the firm is a price taker not a price maker. As such there should be no difference in the selling price of the product based on weather or not there is a union. When a farmer sells his corn on the market the buyer does not care how much it cost to produce or if one farmer pays union rates and another used illegal aliens. The price is the same. If the high cost farmer can not cover his full costs (including profit) then he exits that market.

What the labor union does is use increased bargaining power to force the producer to agree to give a higher portion of the firm’s revenue to the worker than the firm would like to give.

It turns out that a high wage drives a lot of good things while low wages cause a lot of bad things. The definitive work on the impact of cheap labor was done in 1857 by Hinton Rowan Helper. He published a book titled “The Impending Crisis of the South” in which he argued that slavery (the ultimate cheap labor) hurt the economic prospects of non-slaveholders, and was an impediment to the growth of the entire region of the South. In the South, Hinton Helper says: “We want Bibles, brooms, buckets and books, and we go to the North; . . . we want toys, primers, school books, fashionable apparel, machinery, medicines, tombstones, and a thousand other things, and we go to the North for them all.”

There is a good reason that innovation most often comes from wealthy countries. High labor costs force innovation. Using slave labor was cheaper than buying machines. In the beginning the cost advantage of new technology is small. Cheap labor makes it even smaller.

In the antebellum South plantation owners and the merchants who supported them prospered. Everybody else just got by. There was no advantage for a non-slave to have any skill that could be done by a slave.

Conversely, high cost labor is a prime driver behind innovation. A labor saving device is more valuable to in a high cost labor situation. In his book, “The British Industrial Revolution in Global Perspective” Oxford professor of economic history Robert Allen asks: “Why did the industrial revolution take place in eighteenth-century Britain and not elsewhere in Europe or Asia?” Part of his answer is EXPENSIVE LABOR that resulted from the 1348 Black Death, which wiped out a third of England's population and caused wage rates to rise and, in England, reproductive patterns to change, producing a decline in fertility. England's lower fertility ensured that the impoverishing 16th and 17th centuries were less impoverishing than elsewhere in Europe and wages remained relatively high.